Growth Prospect with Rising Uncertainties

FSDH Research
notes that the Nigerian economy requires additional policies to achieve
sustainable growth particularly in the non-oil sector

The Real Gross
Domestic Product (GDP) grew by 0.83% in 2017, compared with the contraction of
1.58% in 2016

FSDH Research
believes the growth in the economy is still fragile as only two out of six
largest sectors of the economy recorded growth in 2017

The foreign
capital inflows into Nigeria increased in 2017 compared with what was recorded
in 2016. FSDH Research however notes that foreign portfolio investments
dominate the capital inflows

The Nigeria’s
external trade balance improved in 2017. However, we note that crude oil
dominates the total exports. Thus, an unfavourable development in the crude oil
market may have adverse implications for the Nigeria’s trade position

FSDH Research
expects the inflation rate in Nigeria to drop to 14.31% in February 2018 from
15.37% in January. We believe the inflation rate is on course to drop to single
digit rate around mid-year

FSDH Research
observed a slowdown in the Purchasing Managers’ Index (PMI) for the second
consecutive month. Although the PMI figures are above 50 points, the slowdown
may reflect the rising uncertainties in the country

Some of the
major rising uncertainties that we have identified in the economy are: The
possibility of capital flight as a result of the increasing justifications for
monetary policy normalisation in advanced countries. The possibility of a drop
in the crude oil price at the international market. Increase in food prices as
a result of the rising unrest in the food producing states in Nigeria. This may
have unfavourable impacts on inflation rate. The delay in the announcement of
the monetary and fiscal policies for the country

FSDH Research
expects the yields on the Nigerian Treasury Bills (NTBs) to drop further in
March while the yields on the FGN Bonds should increase from the current level
in the short-term. We see opportunities in the Corporate Bond Market and the
Corporate Eurobond Market

We expect the
equity market to appreciate in March 2017 as investors take position in the
market ahead of the earnings season.

International
Scene:

There are
strong indication that the Federal Open Market Committee of the U.S Federal
Reserve will increase its anchor interest rate in March. This will lead to
increase in yields

The U.S economy grew by 2.5%
(quarter-on-quarter) in Q4 2017. The inflation rate in the U.S stood at
2.1% (year-on-year) in January 2018. The Unemployment rate remained at 4.1% in
February. These positive developments support rate hike.

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